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The pending holidays have drained activity in the global
capital markets. The US jobs report may spark some short-lived
interest, though the thinness of the market may exaggerate the
impact of real orders.
There are 132.7 mln employees in the US. An increase of 0.1 hours
of the work week is tantamount to 330k full time equivalents.
Earnings growth remains subdued. Feb's 1.9% year-over-year pace
is expected to have been sustained, but despite a better labor
market in Q1, earnings growth has slowed from 2.1% year-over-yea
last March.
We have expressed concern about that the consensus estimate for
NFP does not seem to fully reflect the risk that seasonal
considerations work against a strong report and the fact that the
4-week moving average of weekly initial jobless claims showed
little improvement from the February. However, the shift
in sentiment sparked by the less dovish FOMC minutes may limit
disappointment. Yet to appreciate the
developments this week, one needs to recognize that going into
the jobs report, the benchmark 10-year US Treasury yields
is down 2 bp this week. The dollar supportive widening of
interest rate differentials against Germany took place this week
more because of the tensions in the euro zone and less because of
the shift in perceptions of the risks of QE3. Indeed
core bonds, like German bunds and UK gilt yields are also lower
on the week (6 and 5 basis points respectively).The most compelling explanation is not economic data,
where in fact the UK reported stronger than expected
manufacturing, service and construction PMI reports. Rather the
European debt crisis is flaring up
Italy is faring a bit better, but pressure is evident as well.
The benchmark 10-year yield has risen 34 bp this week and about
60 bp since mid-March. The CDS is up about 20% , bringing it to
levels last seen in late January. The premiums over Germany are
widening as rates rise just as they narrowed as yields fell. The
premium France pays over Germany widened 16 bp this week to 124
bp, which is also the largest since late January.
A series of poor economic reports from Japan coupled with the
political machinations that led to the rejection of the
government's nominee to the BOJ are seen as increasing pressure
for new actions by the BOJ when it meets next week.
Although many Asian markets were closed today, it is noteworthy
that the Shanghai Composite rose 0.2%. There is some speculation
that the PBOC will cut required reserves this weekend that may
have helped support the market. However, we suspect that
officials will be cautious ahead of next week's data dump which
is expected to see a pickup in new yuan loans and a tick up in
CPI.
The lack of participation has kept the US dollar largely within
the ranges seen yesterday. The underlying technical tone of the
dollar improved this week, as reflected by the 5-day moving
averages crossing the 20-day in the euro and Swiss franc.
Sterling';s moving averages look set to cross next week. However,
the broader trading range, such as $1.2970-$.13500 in the euro
remain intact. Similarly sterling is holding above
$1.5770-$1.5800. The failure of the RBA to move this week and the
poor economic data stream has market participants as convinced as
they ever are of such things, that the RBA will deliver a rate
cut next month. Wednesday's range of $1.0245-$1.3040 may mark the
near-term range. The disappointing Tankan report was followed by
news that Japan's monetary base contracted in March for the first
time in two years. As the yen outperformed this week (except
against the Canadian dollar), the Nikkei dropped almost 4%,
including 0.8% earlier today. The euro saw its largest drop
against the yen this week in more than 6 months. .
Spain's 10-year benchmark yield rose 42 bp this week bring the
increase since the beginning of March to nearly 100 bp. The price
of insurance via the CDS market has risen 30% in the same period
to stand at levels not seen since before the
LTROs.

The consensus is for a 205k headline rise in nonfarm payrolls and
215k jobs in the private sector. The unemployment rate is
expected to remain unchanged at 8.3%. While the net job creation
and the unemployment rate will dominate interest, hours worked
and earnings contain important information.